The present invention pertains to weather insurance. More particularly, the present invention pertains to a system for and a method of writing a policy insuring against the occurrence of specified weather conditions, such as temperature above or below a specified level or the falling or absence of rain or snow of at least, or at most, a specified amount.
Weather insurance is an expanding area of interest and might be underwritten to cover a number of contingencies. Thus, coverage might insure against the occurrence of a specified weather condition in a specified location during a specified time period on a specified day, referred to as event coverage. Coverage might also be provided to insure against the deviation of a specified weather condition at any of several geographic locations from the normal occurrence of that condition at each respective location during a specified extended period of time which may be from two days to a year or more, referred to as program coverage. As an example of event coverage, an entertainment group wanting to put on a concert might engage an outdoor stadium, in which event rain or some other specified weather condition could force cancellation of the concert or otherwise have an adverse effect on receipts for the concert. To protect itself from a catastrophic loss, such a group might wish insurance against the occurrence of a specified weather condition that would necessitate cancellation of the concert or otherwise impact adversely on receipts for the concert. As an example of program coverage, manufacturers of certain equipment, for example power snow removal equipment, as an inducement to people to buy such equipment, might offer a refund of a portion of the purchase price in the event the geographic region in which the snow removal equipment is sold has less than a specified amount of snow during the winter in which the equipment is sold. This refund might be on a sliding scale, such as refund of 100% of the purchase price if the total snow fall is less than 10% of normal, refund of 80% of the purchase price if less than 20% of normal, refund of 70% if less than 30%, refund of 60% if less than 40%, refund of 50% if less than 50%, and refund of 20% if less than 60%. Thus, different refund amounts are triggered by different deviations from a normal occurrence. Again, such companies wish to have insurance aganst the conditions that would require them to make such payments.
The underwriting of such insurance requires the ability to determine an appropriate premium for the insurance. The premium must be related to the probability of having to pay a claim.
Records are available, for example from the United States Weather Service, of historical data regarding many specified weather conditions from numerous past years, covering periods of time as frequent as hourly, as well as daily, monthly and yearly. From such data, the actuarial probability of specific weather conditions can be determined for any particular date or any extended period of time. That probability can then be used to decide upon an appropriate premium for insurance against the undesired weather condition. Thus, for example, the probability of rain, or of rain of greater than or less than a specified amount, during a time interval of interest on a particular date can be found and utilized in determining the premium for a policy insuring against rain of more than, or less than, the specified amount during the time interval of interest on the particular date. Likewise, the probabilities of the total snowfall over a particular winter being less than, or greater than, various specified amounts in various geographic locations can be found and utilized in determining the premium for a policy insuring against snow of less than, or greater than, the specified amounts in those locations during that winter. However, maintaining the records required to enable prompt and accurate determination of the needed probabilities is laborious and time consuming, as well as being prone to error.